Contract Terms: Suppliers Versus Subcontractors

Cabinetmakers working for contractors should insist on terms typical for contracts with vendors, not with subcontractors. January 18, 2007

Question
I just got our first 'Subcontract' to fill out for an upcoming job (assuming we agree to the contract). My business is a cabinet manufacturer. We are not a contractor, don't do installations, etc. So the first question I have is do I need to even fill out a Subcontract with the GC if we're not contractors?

The second question is, if I agree to this contract, it would be the first we've entered into where payment to us is contingent on the client paying the GC. I'm curious how common this is, and how other cabinet makers approach this situation. I'll be talking with my attorney about this, but wanted some additional feedback.

Forum Responses
(Business and Management Forum)
From contributor H:
No! You are a manufacturer. You do not do installs. You are no more a subcontractor than the Home Depot/Lowes/local lumber yard supplying material. Payment to you is the same as to them. Cash on delivery or monthly billing. The GC's payment schedule or draws from the client are not your concern. I would strongly suggest you pass on this contract.


From contributor R:
I agree with Contributor H. I would not build anything till I got my money. And I would not let the cabinets out of my shop till they were paid for in full. It does not matter to me if the GC doesn't get paid - not my problem. In California you need to protect yourself and make sure you have lien rights with a 20 day notice. No contract, just a sales order. You are a material supplier only. Seems like the GC maybe trying to pull a fast one.

From contributor D:
The greed of contractors has spawned a universal contempt for them. There are some good ones but they are becoming few and far between.

First off, as stated before, you are a supplier. The materials you furnish are your cabinets, trim and specialty items, just like buying them from Lowe's or Home Depot, except you offer a good product with personal service. As a supplier you are to be paid for your products at least within 30 days if not on delivery. One way to make this point is to have G.C.s fill out a credit application just like with any other supplier.

Once you approve their credit, send a note with your requirements (payments, terms and penalties) just like any other supplier and just like the ones you sign with your suppliers. Right away, this removes you from "sub-contractor" status and places you into the "supplier” status. Laws are different collecting for goods furnished versus services provided. Goods furnished remain your property until paid for. If you install these products, only the installation falls into the sub-contractor category. Installation is a service offered by you. Products and goods are a commodity for sale by you.


From contributor M:
Good advice here. I recently did a job for an architect offering 'Construction Management Services' - GC work. Evan as a sub, he wanted so terms that were beneficial to him, but not to me. I told him that my terms, and that I have to stick to these terms because of the number of 'no pays.' He reluctantly agreed, but I got paid.

The way I see it now, I don't need more work with strings. I do the work, I get paid. I don't need the extra hassle. It cuts into my time and profits. I have fair terms - 50, 40, 10. If that doesn't work, well, I would rather sit home and take a loss than bust my butt and take the same loss.
Given, these contractors have to work with some loser subs, but that is no reason to put me in a disadvantage. Be fair and you set the terms.


From the original questioner:
After talking with the contractor, I can remove the parts of the contract that I have issue with. So the issue of payment only after the client pays is now moot in this case. Apparently, there is an office guy getting all the subs to sign a standardized contract, as part of the GC's efforts to standardize his process. So we got lumped in with the subs. So if the issue arises again, we just clarify to the contractor that we're not a sub.

From contributor T:
Many commercial GCs will write a materials contract or materials purchase order for architectural woodwork not installed, usually with much less onerous terms than their subcontract. All of them have these types of purchasing arrangements so that they can buy materials from stores- it just doesn't usually occur to them that we can be suppliers like everyone else.

From contributor B:
I am a GC and I would recommend to you not to sign it. With a subcontract there is a lot of fine print that will not be beneficial for you, trust me. If it is a standard subcontract then they will hold 10% retainage on you and legally do not have to give it to you to the end of the project when they receive their retainage from the owner. This can be six months after the project is completed.

You need a Purchase Order with payment in full upon delivery and inspection. If he is talking to you then you have the job. Make him conform to your requirements. His subcontract will supersede your quote you give him in most cases. Don't forget to bill him a few thousand dollars for the shop drawings you are going to be doing.

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